Despite being one of the most well known investment schemes, Ponzi schemes still result in considerable losses. In 2020, a hundred years after the incident for which the scheme is named, investors lost $3.25 billion in funds — the highest in a decade.
Even intelligent people are not immune to falling prey to well-laid schemes. Luckily, many general principles still apply when protecting yourself from investment schemes.
How To Identify a Ponzi Scheme
Lackluster Reports and Secretive Strategies
Avoid investments that you do not understand, whether it be from your own lack of knowledge, or from lackluster information from the sellers. If a seller is promising results produced by secretive, unknown tactics, it’s possible that they are hiding the source of their income. Consult an industry expert before investing in a field that you are unfamiliar with, especially in science, medicine, and technology.
Research the Seller
Stockbrokers and investment advisors are required to be licensed by federal and state law; Ponzi schemes will usually enlist unlicensed people to promote the investment. The Financial Industry Regulatory Authority’s (FINRA) BrokerCheck is a tool that investors can use to check whether an advisor is registered.
High Returns with No Risk
If you are promised consistently high returns better than the average stock market return, it’s often a sign of a Ponzi scheme or some other type of improper or fraudulent investment scam. Normal investment returns typically will go up and down with the market, and as a general rule, your investment risk should increase the higher your return. The only “risk free” return in investing is US Government bonds, and their low interest rates reflect the lack of risk.
Rollover
Be suspicious of any investments that encourage you to delay cashing out with promises of higher returns if you let the payment roll over. Do not reinvest if you have not received the payout from your last investment.
High Pressure Sales Tactics
Scammers want investors to make fast decisions before they have the chance to critically evaluate the claims a seller is making. Beware of tactics that emphasize scarcity or brevity.
Business Litigation for Victims of Investment Schemes
The attorneys at Gaslowitz Frankel LLC are experts in business litigation, and have significant experience representing investors harmed by investment scams. When you contact our law office at 404.892.9797, you’ll be in touch with the premier business litigators for the state of Georgia.
Fill out our contact form for free consultation.
Gaslowitz Frankel LLC is the Southeast’s premier fiduciary litigation law firm. Our legal team specializes in all aspects of fiduciary disputes with over 30 years of experience representing individuals, executors, trustees, and more in complex fiduciary disputes involving wills, estates, and trusts.
